1.1 - Production possibility frontiers

Question 1

Production possibility frontiers…

Answer 1

• PPF is a graphical representation of an economy’s maximum production potential given its resources and technology.
• It shows the trade-off between producing different combinations of two goods/services.

Answer 2

• Opportunity cost is the cost of choosing one option over another.
• Marginal analysis involves analysing the cost and benefit of producing one more unit of a good.
• PPF helps illustrate opportunity cost through the slope of the curve.
• The steeper the slope, the higher the opportunity cost.

Question 3

Marginal analysis

Answer 3

analysing the cost/benefit of producing one more unit of a good

Question 4

How is economic growth depicted on a PPF?

Answer 4

• by an outward shift of the PPF, showing an increase in an economy’s productive capacity.

Question 5

How is economic decline depicted on a PPF?

Answer 5

by an inward shift of the PPF, indicating a reduction in productive capacity.

Question 6

How does economic growth occur?

Answer 6

An increase in the quality or quantity of the available factors of production

Question 7

How does economic decline occur?

Answer 7

Any impact on an economy that reduces the quantity or quality of the available factors of production

Question 8

Points on the PPF represent

Answer 8

• Efficient resource allocation, where all resources are fully utilised.
• this resource allocation is attainable given current resources and technology

Question 9

Points inside the PPF curve represent

Answer 9

Inefficiency, where resources are underutilised.

Question 10

Points beyond the PPF

Answer 10

Points beyond the PPF are unattainable without changes in resources or technology.

Question 11

Movements Along the PPF

Answer 11

• Movements along the curve represent changes in the quantity produced of one good while holding the production of the other constant.
• Typically caused by changes in resource allocation

Question 12

Shifts in the PPF

Answer 12

• Shifts represent changes in the economy’s overall production potential.

Question 13

Factors that may lead to shifts in a PPF curve

Answer 13

technological progress,
increased resources, improvements in labour productivity.

Question 14

Capital goods

Answer 14

Goods that are produced in order to aid the production of consumer goods in the future.

Question 15

Consumer goods

Answer 15

Goods that are demanded and bought by households and individuals for personal use and consumption.

Question 16

Distinction between capital and consumer goods

Answer 16

• Capital goods are essential for long-term economic growth and development.
• Consumer goods satisfy current consumption desires but do not contribute directly to future growth.